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Wilbur Ross Sets NAFTA Menu: Global Week Ahead

In the Global Week Ahead, a big event occurs on Wednesday night. North American Free Trade Agreement (NAFTA) renegotiations start with a cabinet level dinner in Washington DC.

The reigning NAFTA trade pact between the U.S., Canada, and Mexico is 23 years old. Renegotiations should start slowly. They should move aggressively to the most sensitive sectors -- auto and dairy -- by October.

Their slate shows us a very ambitious schedule of 7 negotiating rounds by year-end. The parties at the table hope to conclude a renewal by early 2018.

Any delay encounters a 3-pronged schedule of future elections--

· Number One: By early next year, the U.S. Congress will move into campaigning ahead of November 2018 mid-term elections.

· Number Two: Mexico’s general election will be held on July 1, 2018. Current President Enrique Peña Nieto cannot run again. His ruling, centrist Institutional Revolutionary Party (PRI), a party that has ruled for much of Mexico’s modern history, is the underdog in polling.

The PRI recently polled just 17% support across eligible decided voters in a survey done by the Reforma newspaper. The left wing MORENA party garnered 28% support. The center-right National Action Party polled 23%.

A hard line in renegotiations by the U.S. will play to left-wing Mexican opposition candidates. That could risk derailing talks.

· Number Three: Canada faces a general election on or before October 21, 2019. The Trudeau administration and its opposition swing into campaign mode sometime in early 2019.

Caroline Freund, a senior trade fellow at the Peterson Institute for International Economics in DC, summed talks up to Business Insider in this way — "The Trump administration has framed their NAFTA negotiating objectives around reducing the trade deficit with Mexico. If they don't touch autos, there's no way of getting at what they want."

Among tools U.S. Trade Representative Robert Lighthizer may seek to boost U.S. auto employment is strengthening the rules of origin to shut out more parts from Asia. He could also seek an unprecedented U.S.-specific content requirement for Mexican vehicles.

The auto industry is opposed to such a carve-out, or to increasing the percentage of a vehicle's value that must come from the region above the current 62.5%. This is already the highest of any global trade bloc.

The automakers say this would raise costs and disrupt a complex supply chain that sees parts crisscrossing NAFTA borders and has made North American car production competitive with Asia and Europe.

If U.S. Commerce Secretary Wilbur Ross gets his way, it would be harder to reach the 62.5% content threshold because the "tracing list" of parts that count towards that goal would be modernized.

He argues the current rules are too loose and allow a tariff-free "back door" for Chinese auto parts.

Top Zacks #1 Rank (STRONG BUY) Stocks—

With NAFTA talks likely to focus on U.S. autos, maybe look to Europe instead. Collectively, their automakers look sharp to covering analysts at the moment.

Here are three…

Daimler AG DDAIF: This $75B in market cap German automaker is getting its fair share of abuse in the current German elections. But the stock is holding up nicely. The Value score of B is worth noting too.

Bayerische Motoren Werke (AG) BAMXF: This is BMW, folks. This $56 billion market cap German automaker is also a Zacks #1 Rank stock. The Zacks Value score is B again.

Volvo AB VLVLY: This is the smallest (at $34B in market cap) of the three European auto stocks I am bringing to your attention. It gets both a B in Zacks Value and an A in Zacks Growth.

Key Global Macro –

Chinese macro data is an early focal point. On Monday, that country released retail sales (up +10.6%) and industrial production figures. Property prices hit on Thursday.